UTI MF Lists Nine Mid Caps With Winning Characteristics Of Large Caps

India’s largest stocks have been winners for more than two years. First, uncertainties around a slowing economy and then a global pandemic that rocked the equity market worldwide drove investors to the safety of quality names that have strong balance sheets, bargaining power with suppliers and better access to capital, among others. Now, UTI Mutual Fund’s Ankit Agarwal, in his bid to find higher returns, has come upon another set of stocks which offer the stability of a large cap and the return potential of a mid cap.Dubbing them as ‘large-cap isotopes’ — a metaphor borrowed from his chemistry days of studying elements, neutrons and protons — the fund manager suggests investors to look at mid-cap stocks with the same winning characteristics of a large cap. Identifying such stocks within mid caps only means the companies have a long runway of growth and a few of them may even scale up to become the large caps of tomorrow, he said.The top 10 performers of the S&P BSE 200 over the last one year includes nine names which started the year as mid caps but have now swelled into large caps, giving multi-fold returns to investors.“If one analyses the sub-sectors, one would realise that some mid-cap companies are operating in a niche where they are competing favourably with some large caps or are themselves leaders in the space,” Agarwal told BloombergQuint in an interview. Narrowing down on nine such companies, the fund manager is now betting on ‘large-cap isotopes’ that are leaders in their niche and show a long runway for growth.The list includes Abbott India Ltd., Balkrishna Industries Ltd., Bayer CropScience Ltd., Biocon Ltd., Coromandel International Ltd., Gujarat Gas Ltd., Ipca Laboratories Ltd. Muthoot Finance Ltd. and Tata Consumer Ltd.UTI Mutual Fund—that manages Rs 1.33 lakh crore in assets—had published a related report in July..Why Morgan Stanley Sees Small And Mid Caps Staging A Comeback.These companies, according to Agarwal, have showed ability to create leadership and operate with significant moats in their respective segments. These firms also happen to be among the better managed, with strong balance sheets and return ratios. “This provides adequate cushion to some companies in this space to weather some balance sheet stress owing to low profitability or absence of revenues,” Agarwal had said in the report.As for the ability to raise capital, while most of these isotopes do not require new capital, some of them such as Muthoot Finance and Coromandel International have raised funds through the commercial paper route at profitable rates, the report said.Investors, Agarwal said, need to look at specific stocks and research their fundamentals instead of taking a top-down sectoral approach or strictly looking at large or mid caps.“As long as one monitors the stock selection and uses bottom-up approach to investing, one can weather these storms better whether it is in large caps or mid-caps space,” he said. “In other words, focus on the desirable chemical properties, that is, operating characteristics of the business, rather than mass, that is market capitalisation.”Sectors Of ChoiceChemicalsChemicals is where Make-in-India could really pan out in the near term.Key tailwinds for the sector include availability of specialised labour, companies compliant with global environmental norms and global MNCs already looking for an alternative source of supply.Building MaterialsExcluding paints, this is one sector that has significant unorganised share. But as the organised segment gains share from the unorganised, the possibility of catch-up to the large-cap peers in the paints segment seems imminent.Many well-managed building material companies having return metrics and balance sheet strength as their large-cap peers..Watch the full conversation here:.Why Milind Karmarkar Is Willing To Bet On Hotel Stocks Amid The Pandemic.(Corrects an earlier version that misspelt Ankit Agarwal's last name)

UTI MF Lists Nine Mid Caps With Winning Characteristics Of Large Caps

Nine stocks that offer the stability of a large cap and return potential of a mid cap.

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